MALL CUSTOMER SEGMENTATION ANALYSIS

Name: Kalash Daf

Abstract:
Customer segmentation has become a very popular method for dividing a company's customers
in order to keep customers and profit from them. In the study below, customers of a specific mall
are categorized on the basis of their behavioral characteristics, such as spending and income,
making these methods more effective than others. Customers are identified using a machine
technique called the kmeans clustering algorithm based on their behavioral characteristics. Using
formed clusters, a business may target certain customers and market to them by using social
media and marketing campaigns to promote information that piques their interest.
Keywords. Machine learning, Customer segmentation, K-means algorithm

Problem Statement:
Proper approach required to reach out target audience:
To achieve who your target market is and what do they want from us: This is where your
customer segmentation comes in. To craft a message that will help you say the right thing to the
right audience, you need to speak to your target market’s wants and needs.

Market/ Customer/ Business Need Assessment:

Customer segmentation is the division of a market into various unique consumer groups with
related characteristics. Market segmentation is a useful tool for identifying and satisfying
customer needs. Market Basket Analysis is carried out using unsupervised machine learning
techniques, the K-Means Clustering Algorithm, Minibatch K-Means, and hierarchical clustering.
In order to identify the target customers that can be easily converged, market basket analysis is
done. to enable the marketing staff to prepare a plan for promoting new products to target
customers who share their interests.
Target Specifications and Characterizing:
1. To cluster customers based on common purchasing behaviors for future
operations/marketing projects
2. To incorporate best mathematical, visual, programming, and business practices into a
thoughtful analysis that is understood across a variety of contexts and disciplines
3. To investigate how similar data and algorithms could be used in future data mining
projects

Other common benefits of customer segmentation include:

 Improving your customer service and customer support efforts.

 Helping internal teams prepare for challenges different groups are likely to experience.

 Communicating with segments of customers through preferred channels or platforms.

 Finding new opportunities for products, support, and service efficiently.

External Search:
Dataset:
www.kaggle.com Kaggle is an online community platform for data scientists and machine
learning enthusiasts. Kaggle allows users to collaborate with other users, find and publish
datasets.

Reference Article Links:

https://blog.hubspot.com/service/customer-segmentation
https://www.qualtrics.com/experience-management/brand/customer-segmentation/

Benchmarking:
Decision makers use many variables to segment customers. Demographic variables such as age,
gender, family, education level and income are the easiest and common variables for
segmentation. Socio- cultural, geographic, psychographic and behavioral variables are the other
major variables that are used for segmentation. Presented various clustering algorithms taking
into account the characteristics of Big Data such as size, noise, dimensionality, algorithm
calculations, cluster shape and presented a brief overview of the various clustering algorithms
grouped under partitioning, hierarchical, density, grid-based and model-based algorithms.
Explored the necessity of segmentation of the customers using clustering algorithms as the core
functionality of CRM. The mostly used K-Means and Hierarchical Clustering were studied and
the advantages and disadvantages of these techniques were highlighted. At last, the idea of
creating a hybrid approach is addressed by integrating the above two strategies with the potential
to surpass the individual designs.

Applicable Regulations:
The customer segmentation software according to the present invention automatically finds or
creates profiles of prototypical customers in a large e-commerce database. The software matches
all existing customer data in the database to one or more of the prototypical customers. The
resulting customer segmentation is an effective summarization of the database and is useful for a
range of business applications. Applications of the customer segmentation system include the
development of customized web sites, the creation of targeted promotional offers and the
prediction of consumer behavior.

Applicable Constraints:

 Cost: Segmentation is an investment: Splitting your market into groups means you’ll
have to do some things, for instance, marketing campaigns, multiple times in different
ways. This can be more time-consuming and expensive than running a campaign aimed at
a single market.

 Understanding that people can belong to multiple segments: It’s easy to fall into the trap
of thinking that each potential customer belongs solely in one specific segment. However,
this is an oversimplification.

 Keeping segments precise: Segmentation only works when segments are clearly defined
and distinct from one another. If your segments are too broad and vague, you’ll lose out
on many of the benefits of market segmentation because you’re unable to tailor your
approach precisely enough.

 Selecting the right segments to focus on: It can be easy to overlook some potentially
promising groups when segmenting your market. the benefit of segmentation is that it can
enable you to be incredibly precise and personalized in your approach. This means that
even when targeting segments that make up smaller proportions of the market, you will
still see significant returns

 Embedding the segmentation in your organization: When people try to anticipate the
difficulties in running a segmentation, the research approach is often the first to come to
 mind. But the real challenge for many organizations is in embedding the segmentation.
This is crucial if the segmentation is to drive change and growth for the business.

Business Model:
Management and upkeep of client relationships have always been crucial in helping businesses
develop, manage, and cultivate lucrative long-term customer relationships. In the modern era, it
is becoming more and more critical to recognise customers as an organization's core asset. The
development of customer acquisition, maintenance, and development plans is something that
businesses are interested in funding. Business intelligence is crucial in enabling businesses to
employ technical know-how to improve consumer knowledge and outreach programmes.
Customers with comparable means are grouped together using clustering techniques like k-
means. The marketing team uses customer segmentation to identify and highlight several
customer groups that have distinctive buying habits and ways of thinking. Customer
segmentation aids in identifying customers with a range of preferences, expectations, desires,
and other characteristics. The fundamental goal of customer segmentation is to put people in
groups based on their shared interests so that the marketing team can come up with an efficient
marketing strategy. Clustering is an iterative procedure for extracting knowledge from enormous
amounts of unstructured and raw data. In several fields, including machine learning,
classification, and pattern recognition, clustering is a sort of exploratory data mining.

Concept Generation:
Customer segmentation is the process of tagging and grouping customers based on shared
characteristics. This method also makes it simple to customize and customize your marketing,
customer service, and sales initiatives to meet the demands of particular demographics. As a
result, client loyalty and conversion rates may increase.

For e.g. before emailing your coworkers, you may, for instance, send a group text to your entire
family informing them of a promotion. The same holds true for our clients. Each of them has
particular requirements, characteristics, problems, and expectations for your company.
Additionally, there are occasions when grouping your target audience together is the most
efficient approach to interact with them.

Concept Development:

A customer segmentation model enables businesses to target particular client groups, allowing
for the efficient allocation of marketing resources and the optimization of cross- and up-selling
opportunities. It is simpler for businesses to give clients customized offers intended to entice
them to buy more products when a group of customers receives individualized communications
as part of a marketing mix tailored to meet their needs. Customer segmentation can boost
customer satisfaction, support client loyalty, and increase customer retention. In contrast to
impersonal brand message that doesn't acknowledge purchase history or any other type of
consumer data, marketing materials sent out using customer segmentation tend to be more valued
and appreciated by the customer relationship who receives them.

Proposed System
Product Details:
1. Data Gathering: first, Data analyst fetch data required for analysis from database, format data
i.e., remove all NA values from data & make data ready for processing.
2. Feature Extraction: Selects features which makes model more accurate, in our case features
are annual income and spending score for efficient analysis.
3. K-means Classifier: After that, K means classifier performs clustering with respect to features
provided to it.
4. Hyper Parameter Tuning: During forming groups to select optimal no of clusters we applied
hyper parameter tuning which is achieved by Elbow method to choose optimal no of clusters.
below graph is for elbow method which shows curve is getting flatter after which indicates that is
optimal no of clusters, we can form for better classification
5. Data Visualization: With the formed clusters marketing team can make different strategies for
better targeting customers.

Methodology
Clustering
Clustering is one of the most common methods used in exploring data to obtain a clear
understanding of the data structure. It can be characterized as the task of finding the subtitles and
subgroups in the complete dataset. Similar data is clustered in many subgroups. A cluster refers
to a collection of aggregated data points due to some similarities. Clustering is used in Market
basket analysis used to segment the customers based on their behaviors and transactions.

K Means Clustering Algorithm

K Means Clustering is the most common and simplest Machine learning algorithm and it follows
an iterative approach which attempts to partition the dataset into different “k” number of
predefined and non-overlapping subgroups where each data point belongs to only one subgroup
according to their similar qualities.

Hierarchical Clustering Segmentation

The output of this model is a set of visualized clusters, where each cluster is distinct from each
other cluster, and the objects within each cluster are broadly similar to each other in features.
Elbow Method
Elbow method is a tool used for analyzing the clusters formed from our dataset and helps to
interpret the appropriate number of optimal clusters in dataset. From this method the optimal
number of clusters for our dataset is found to be seven.

Data Source:
https://www.kaggle.com/datasets/vjchoudhary7/customer-segmentation-tutorial-in-python

Code Implementation:
Visualizations based on the Augmented dataset:
Github Link:
https://github.com/kalashdaf/Customer-Segmenatation-
/blob/64e4db49fce2a4eabe7389d0ad704c9a612f0cbb/Customer%20Segmentation%20.py

Conclusions
This study demonstrates that segmenting customers based on behavioral characteristics is a better
approach for solving the current customer segmentation problem, and the K-means clustering
algorithm is identified as a good choice for this approach. Customer segmentation is performed
on the company's customer data, and with the help of K-means clustering machine learning
algorithm, customers are divided using features like total spending and annual income.
Additionally, customer segmentation is well-liked since it aids in identifying future products and
services to develop as well as how to more successfully market and sell current offerings. This is
so that we can better comprehend the wants and demands of your clients.

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